Julio Velarde proposes increasing workers’ contributions to the AFP: “10% is very little”

The debate on the reform of the Peruvian pension system in Congress will take place in the coming weeks. In this sense, the president of the Central Reserve Bank of Peru (BCRP), Julio Velarde, considered it necessary to increase the contribution rate of members of the Pension Fund Administrators (AFP), currently set at 10%.

This percentage discounted from the salary of workers on the payroll for their Individual Capitalization Accounts (CIC) of the AFPs becomes insufficient as life expectancy continues to increase, as declared by the head of the issuing entity during the first conference of 2024 on the inflation report in our country.

What did Julio Velarde say about the contribution of workers to the AFP?

The president of the Central Reserve Bank of Peru (BCRP), Julio Velarde, proposed increasing to a higher percentage the 10% monthly contribution rate made by workers affiliated with the AFPs, with the purpose of ensuring adequate pensions in the face of the increase in the life expectancy of the population.

During the first conference of 2024 on the inflation report in Peru, Julio Velarde indicated: “Probably as has happened in Chile, 10% is very little now that life expectancy continues to grow, unless people retire later. In Chile they are increasing it to 15%, in Europe they typically exceed 15%. Here we are at 10%, but it is a process and a change will have to be made little by little. The essential thing is that scheme“.

The head of the BCRP pointed out that, compared to Chile and other European countries, whose contribution rates exceed 15%, in our country this percentage is insufficient to guarantee a pension that covers at least 50% of the remuneration received during life. labor. These claims are supported by recommendations from the World Bank.

Velarde supported the private contribution system through the Individual Capitalization Accounts (CIC) of the AFPs, in contrast to the contribution in the Pension Normalization Office (ONP), where the contributions go to a common solidarity and intangible fund. In his words: “Individual accounts have the advantage that they do not defund the (public) budget, but their disadvantage is that only if we lived 140 years would we reach what we have or would we have to work more (years).”

Seventh AFP Retreat 2024: what is Julio Velarde’s opinion?

The upcoming debate on a new disbursement of private pension funds was also a topic of opinion for Julio Velarde, who had already spoken out against it during his presentation at the Congressional Economy Commission. This time, the head of the Central Reserve Bank of Peru reiterated that, if the approval of a seventh withdrawal from the AFPs is finalized, it would affect the future pensions of retirees.

“It’s a pension system, pensions are for old age. And everyone grows old, be sure of that. I don’t know any serious people, except some ultra-liberals, but almost everyone believes that the pension system should be maintained. And “Pensions are very low, a retirement implies that they will be even lower”held.

Let us remember that Velarde presented his technical opinion last year on the negative impacts that a new withdrawal authorization from the AFPs would bring. During the eighth ordinary session of the Economy Commission, held on November 22, 2023, the head of the BCRP stated that allowing a disbursement of private pension funds would contribute to reducing pensions even further. “We are killing the possibility of financing for old age,” he said.